Why Infosys, HCL are shying away from government projects

IT comapanies are shying away from government-backed information technology contracts.

BANGALORE: Software companies are shying away from government-backed information technology contracts, frustrated by delays in payments and lack of clarity about project milestones. 

While earlier they would throw their hats in the ring for virtually every government project, even the largest IT companies are becoming choosy about the type of contracts they want to be part of. Infosys, for example, did not bid for a Rs 200-crore project to computerise the Debt Recovery Tribunal, India business head C N Raghupati said, because the company was seeking a clearer investment and execution roadmap. 

Another project by the telecom department to set up a facility to test equipment for security vulnerabilities and spyware did not take off due to lack of clarity in the funding model and milestones. Many such government projects, including the DRTs, lack a clear process roadmap that defines milestones. As payments are typically linked to milestones, this results in delays in payments. "Major IT players have become more circumspect and are participating only in projects that are well-funded and have clear vision and can pay," said, Rohtin Bhattacharya, executive vice president who for corporate strategy at HCL Infosystems. "We have faced delay in payment from government entities and are trying to get our money." 

The company, which gets a lion's share of its business from the government, saw its revenue declining from to Rs 10,856 crore in fiscal 2012-13 from Rs 11,548 crore a year ago. From next to nothing from the private sector two years ago, the company gets about Rs 171 crore now. "As a part of the strategy we are focusing on the non-government customers and expanding our portfolio to private sector but we still have government orders worth roughly a $1 billion." Gartner estimates the government technology market in India to be worth about Rs 37,000 crore (including IT products and services) in 2013, with Tata Consultancy Services, and IBM having a dominant share. With general election due in early 2014, industry experts said that most large projects are stalled or are progressing at snail's pace. 

A senior executive at IBM, who requested not to be identified, said that payment delays have become acute as bureaucrats fear greater scrutiny by auditors and vigilance agencies in the wake of several recent corruption scandals. "With payments getting stuck, chief financial officers are pulling up India-business heads at most of the large IT companies asking them not to bid forgovernment projects as they are seen as being too risky from a cash-flow perspective." 

In the June quarter, TCS reported that its India business shrank by about 5% from three months before. For the $12 billion company, the domestic market contributes about 8% to sales. Similarly, Wipro's revenue from India and the Middle East fell by 7%. TCS and Wipro did not reply to questions for this story. 

The spokesman for the Department of Electronics and IT did not make himself available for comment. However, a senior official in the department said on condition of anonymity that, typically, payment delays are on account of "milestones not being achieved." 

Sanjay Dhawan, who heads the technology practice at PwC, said he does not foresee a quick turnaround in the state of government projects. "Macroeconomic factors, uncertain rupee-dollar fluctuation and the political sentiments with election coming up are making vendors go cautious with government projects.
"